Optimum central bank transparency

In this study, optimal transparency is examined in terms of the central bank’s conduct of monetary policy. We show how the lack of consensus on the benefits of increased transparency on the effectiveness of monetary policy rehabilitates the issue of optimal central bank transparency. Optimal transparency refers to a level of communication beyond which increased transparency would reduce the effectiveness of monetary policy. In this study, the optimal degree of transparency on objectives was shown to enhance central bank credibility and reduce the risk of time inconsistency. By leading to a specific objective rule that combines efficiency, flexibility and transparency, the development of a loss function for the monetary policy rule targets both price and financial stability. The aim is to implement a monetary policy consistent with the expectations of financial market players.